The recession has not been kind to women on Wall Street. Consider these recent reports in the financial press: Even though women hold a minority of financial sector jobs, five times as many women as men were laid off after the start of the recession, according to Bloomberg News. Meanwhile, the pay gap between men and women in the industry, Bloomberg adds, actually widened between 2000 and 2007. The result is that while women in the broader work force have made significant progress toward pay and opportunity parity, they have actually lost ground on Wall Street.According to The Wall Street Journal, 9.6% more men are working in finance now than 10 years ago, but 2.6% fewer women. Among young workers, the numbers are even starker: 16.5% fewer women aged 20 to 35 and 21.8% fewer women aged 20 to 24.

In short, the number of women even choosing to work on Wall Street has dropped, and many of those who do start out there are deciding to leave or are being pushed out.

Many back-office and administrative jobs — those often held by women — have been lost for good due to technology and outsourcing,according to the Journal. Wharton management professor Matthew Bidwell suggests that the number of women in these types of jobs padded the numbers and made it less obvious how absent women still were from trading and investment banking — the big-money jobs where careers are made.

Why, after so many years of Wall Street apologizing for its poor treatment of women and promising to do better, do things seem worse? And are there consequences? If women are not interested in these jobs and are finding more opportunities with better pay parity in other sectors of the economy, does it matter that they are not on trading desks, doing merger deals or managing IPOs?

Uncertain Pay-off, Less Potential

Janet Hanson, a Goldman Sachs alumna and a long-time recruiter, mentor and cheerleader for young women on Wall Street, says that during the peak of the financial boom, when Wall Street couldn’t hire fast enough, Lehman Brothers and other firms stepped up their efforts to bring young women on board. “It was a blitz,” says Hanson, who is the founder of 85 Broads, a professional group for women in finance careers. But as the statistics show,layoffs and attrition have clearly eaten away at any gains that might have been made. Even with the employment situation improving in the financial sector, firms do not need to recruit as proactively as they did a few years ago, Hanson adds,and clearly women aren’t seeking these jobs out on their own.

The conventional wisdom is that women value work-life balance. Since they know they will not find that on Wall Street, they are steering clear of finance for careers that have less pressure, shorter hours and more time for family. But the reality isn’t that simple. “I resist looking at this as an issue of ‘women don’t want to work as hard,’” says Monica McGrath, an adjunct professor of management at Wharton. “They do work hard and want to, but they want it to pay off.” And on Wall Street, she notes, it’s not clear that it will.

Bidwell did a study of MBAs at a top business school to find out what professions students identified with and where they applied for jobs. “Women were less likely to say they identified with finance jobs, especially investment banking. [Because] these jobs were seen as macho, the women believed that companies would be looking for more macho attributes” and thus would be less likely to hire women. Instead, he notes, female MBAs gravitated toward business development and marketing. Those who studied finance tended to put that interest to work in general management jobs. “They would go into the accounting or controller’s office at Ford or wherever,” and perhaps get on the track to become a CFO.

McGrath says the study backs up her point. “If you get a job as an assistant to the CFO, there is … opportunity for you to be the CFO; you see potential. Do you see that same potential on Wall Street?”

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Indeed, the percentage of women executives on Wall Street was small and slipped during the recession, from just above 10% in 2008 to just below 10% in 2009, according to the Financial Women’s Association. But beyond Wall Street, the picture is different. The Campbell Soup Co., for one, has said that it wants 80% of its employees to be women in order to match the demographic of its customers.This gives the company a broad base from which to pull female managers, and, in fact, women now run the company’s dominant business lines and make up a quarter of its executives. This year the company won an award from Catalyst, an organization that tracks women’s progress in corporate America. But the programs, role models and quantifiable progress in companies like Campbell, Deloitte LLP, IBM, GE and Baxter International — each of which has received accolades from Catalyst, Working Mother magazine and others– can make a compelling case for these employers that Wall Street firms have a hard time matching.

Ongoing research from Catalyst, however, also shows that these companies are the exception rather than the rule. Among Fortune 500 companies, the organization reported that less than 3% of CEOs are women, while women make up 13.5% of overall senior executive posts, 6.3% of the top earners and 15.2% of board members.

The organization has found that it’s not just on Wall Street that women are struggling to close the gender gap. For example, in the 2007-2008 academic year, women made up 46.9% of law school students, but in 2009 were 32.4% of all lawyers and 45.7% of associates. The percentage of women in the U.S. who have become partners has increased, but slowly, from 12.9% in 1994 to 19.2% today. As for pay, male lawyers who are equity partners at their firms earn $65,850 more than their female counterparts.

But Hanson acknowledges that Wall Street has lost much of its allure of late, especially in ways that are likely to make an impression on women. Lehman Brothers earned credit during the boom for real strides in creating opportunities for women in investment banking at the top and the bottom of the ladder. The firm’s Encore program reached out to women who had left financial jobs and recruited them to work at Lehman. Hanson was hired to recruit women right out of college. “(COO) Joe Gregory was a visionary for leveling the playing field at Lehman; it was his passion,” Hanson says. The firm, of course, is no longer around and, according to several media reports, some in the financial industry blame Gregory’s “fixation” with diversity as a distraction that took the firm’s eye off the ball and led to its downfall.

The irony here is evident, given that another factor working against the industry is the financial meltdown itself. “It’s interesting that the CEOs and executives responsible for the problems, and the government people trying to fix them,” were all men, notes Carrie Coghill, a financial services veteran who runs her own advisory firm in Pittsburgh, DB Root & Co. “I wish it were a wake-up call for these places.”

A Worthwhile Investment?

Some women have chosen to sound the alarm by filing discrimination charges against several of Wall Street’s best-known firms, including Bank of America, Goldman Sachs and Citigroup. The suit against Citigroup, filed earlier this month by six current and former employees, blasted the company for “failing to address the pervasive discrimination and retaliation that its female employees have been subjected to through the course of their employment,” according to The Wall Street Journal, which added that the bank denied the charges and described “many of the allegations [as] either totally inaccurate or selectively incomplete.” Bank of America has also denied the allegations against it, and Goldman Sachs has said a suit recently filed by three former female employees is without merit.

According to McGrath, the presence of women elsewhere puts these challenges in sharp relief. “Women today have been educated in an environment where at least half the people in the room are women,” she notes. “Why would they choose a field that’s male dominated, where it’s going to be hard and not pleasant, where they will pay the price in terms of childcare and time with their family and where the payoff is uncertain? They are asking, ‘Is the investment of my energy and intellectual capital worth it?’” When Coghill talks to women interested in the finance industry, “I tell them the stereotypes about Wall Street do exist. If you want to work there, you have to accept it and overcome it by being educated and making sure you know what you’re talking about.”

But why deal with it at all, when other opportunities abound? Hanson points to a number of young women she mentored or knows who left brand name financial firms to start online companies such as Learnvest.com. ChickRx, Aha Life and Gilt Groupe. Founding a start-up, especially one that has received venture capital, is not something most people do to improve work-life balance, but as founders, these women can decide how much they want to push themselves and how big they want to be. In addition, they will reap the financial rewards of those decisions.

If women are finding satisfying opportunities elsewhere, do they really need Wall Street, and does Wall Street need them? Most observers say “yes” on both counts.

“The thing about investment banking jobs is that they pay ridiculous amounts of money. So women are being excluded from some of the best paying jobs,” says Bidwell. Indeed, women’s pay parity has reached 80 cents on the dollar in the broader economy, reports Congress’s joint economic committee. But in finance, it is in the neighborhood of 60 cents, according to data in the Bloomberg story. Having more women collecting outsized Wall Street bonuses — and having enough of a critical mass to narrow the sector’s pay gap — could go a long way toward closing it up more broadly. Moreover, Hanson adds, spending two years after college as an analyst at a financial firm “is first-class training in finance and global markets.” The drop in the number of new graduates entering the financial services industry, she says, “makes me sad because going forward, you will see fewer women doing a stint on Wall street before doing something else.”

And, some add, whether or not the financial firms appreciate it, the lack of diversity is probably hurting them. “If you are only tapping into people who are willing to work these hours and under these circumstances, you are truncating your sample and losing out on a lot of potential talent,” says Wharton management professor Nancy Rothbard. “The structure is based on huge bonuses, but you have to ask, how would your culture improve if you didn’t only have people who will leave if they don’t get a ton of money because their working conditions are so grueling? It’s a very expensive way to … keep things running.”

Several experts also note that it is easy to make the case, fairly or not, that the upheaval at Lehman, Bear Stearns, Merrill Lynch and AIG was the result of tunnel vision; that the only people in the room were hyper-ambitious, type-A men whose appetite for risk and big payouts outran their prudence and common sense. If that really is the case, more diversity of perspective and temperament in general — including input from women — might have put a brake on some of the most extreme decisions.

If financial firms do want to woo women back, they have role models to look to for advice. There was a time, in the 1990s, when the big accounting firms were notorious for being difficult places for women. But one such firm, Deloitte, won a Catalyst award this year for achieving a milestone of 1,000 female partners, principals and directors, nearly quadrupling the portion of women leaders they had in 1995. These days, 36% of senior managers are women, up from 23% 15 years ago.

Rothbard says Deloitte turned its image and culture around “by questioning assumptions. At Deloitte, the assumption was that women were leaving to have babies, but when the company did exit interviews and tracked where people were going, they found these women were heading to other accounting firms” whose opportunities were thought to be better.

Tax season is still time consuming, auditing is still painstaking and consultants still travel a lot. But Deloitte tweaked managers’ expectations about what working parents were willing to take on, experimented with flex-work and telecommuting, and acknowledged that there could be a slow track as well as a fast one to partnership. Financial firms should question their assumptions in a similar way, Rothbard suggests. “Do you work these hours solely because the clients want you available around the clock, or is it also because it’s engrained in the culture and it is how you prove yourself?” she asks. “There are ways to redesign work so that the grueling hours aren’t as necessary.”

As more women get their MBAs and organizations like the Forté Foundation — which provides fellowships, career advice and mentoring to women in business school — work to fill the financial career pipeline with women, firms also have to question the well-worn assumption that women just are not interested in finance. One wonders, “is it harder for women because of the inherent work or because of the culture?” asks Bidwell. “One can say that women are choosing to do other things, but they are making those choices within the constraint of expectations about them — and about the industry. Whether or not the stereotypes about behavior and practices are true, they exist and are enough to deter women and create a self-perpetuating situation.”

How long does the Street have to examine its own incorrect assumptions and work on adjusting them? According to Hanson, until the next financial boom stirs up another war for talent. “Wall Street has got to figure out what the next decade looks like from a business and human capital standpoint,” she says. “And firms have to realize they aren’t just competing with Morgan Stanley and Goldman Sachs for talent; they are competing with all these other companies and opportunities.”